Investors have generally underestimated the impact QE has had on the economy, says Stephanie Pomboy in a Barron's interview, and as a consequence are underestimating the effect of the taper. That the economy has no self-sustaining momentum is starting to come into focus though, she says, expecting to see nominal growth continue to decline. "Over the longer term there is no material upside risk to Treasury yields ... You want to sell at 2% and buy at 3%."
Housing is key, says Pomboy, and there's little doubt QE had an enormous positive impact on the sector. This more or less came to and end one year ago when Ben Bernanke simply raised the possibility of the taper, and housing hasn't recovered its footing since. "What we need to sustain housing from here, if anything, is lower rates, not a taper."
Summarizing her view of the economy is a chart comparing net worth with consumer spending. Household net worth is up $25T since the March 2009 bottom, but spending growth hasn't materially accelerated alongside - an unprecedented occurrence over the past 50 years. And what spending increase there has been, she says, is almost fully the result of inflation - hardly a sign of consumer strength.
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